The rebound comes as political wrangling in Washington over federal-spending cuts and debt begins to shake consumer confidence, raising the risk that the world's largest economy will suffer.

"The housing market is coming back, gaining momentum, and it's one of the bright spots for the economy as we start 2013," said Robert Dye, chief economist at Comerica Inc, based in Dallas, Texas.

Purchases of previously owned homes climbed to a 5.1 million annual rate in December, the strongest since November 2009, economists project National Association of Realtors figures to show.

And new-home sales picked up to a 385,000 annual rate for the month, the best showing since April 2010, according to the survey median ahead of a Commerce Department report to be released tomorrow.

The combined reading would be the strongest since a government tax credit for first-time buyers first expired three years ago. It would be the second-highest since August 2007, four months before the last recession began.

As a result of the pick-up in demand, the inventory of homes for sale has dwindled, driving up real-estate values and encouraging more construction.

There were 2.03 million existing homes on the market in November, the fewest since December 2001, and 151,000 new houses for sale, close to the 142,000 reached in July that was the lowest since records began in 1963.

The most recent S&P/Case-Shiller index of homes in 20 cities showed prices increased 4.3 percent in October from a year earlier, the biggest gain since May 2010. The gauge is up almost 9 per cent since reaching a 10-year low in March.

Builders broke ground on 954,000 new homes at an annual rate in December, according to Commerce Department data released last week.

Last month's starts capped the best year for the industry since 2008, adding to signs that residential real estate is contributing to economic growth.

Record-low borrowing costs have underpinned the gains. The average rate on a 30-year, fixed mortgage was 3.38 per cent last week, hovering near the 3.31 percent reached a month earlier that was the lowest in data going back to 1972, according to the Federal Home Loan Mortgage Corporation, otherwise known as Freddie Mac, based in McLean, Virginia.

Progress will probably build in 2013. Sales of existing homes will rise about 7.2 per cent to 4.98 million this year, the highest since 2007, according to the median estimate of economists and housing analysts surveyed by Bloomberg.

Prices will gain 3.3 per cent after an estimated 4.5 per cent jump in 2012, according to the forecasters.

Builder shares are reflecting the recovery. The Standard & Poor's Supercomposite Homebuilding Index advanced 101.4 per cent since the end of 2011, outpacing the 18.2 per cent gain in the broader S&P 500.

"After seven years of navigating an unprecedented market downturn, we finally saw stabilisation and recovery in 2012," Stuart Miller, chief executive officer of Lennar Corp, the largest US homebuilder by market value, said earlier this month.

"While there are still economic and political uncertainties ahead, we feel that this housing recovery is fundamentally based and driven by a long-term demographic need for housing. 2012, therefore, we believe is just the beginning of the recovery."

Also this week, the index of leading economic indicators, a gauge of the outlook for the next three to six months, will probably show the expansion will overcome the rancour of the fiscal talks in Washington.

The median estimate of those surveyed project the New York-based Conference Board's measure climbed 0.4 per cent last month after declining 0.2 per cent in November.